Quick Facts

Algeria’s economic freedom score is 48.9, making its economy the 157th freest in the 2015 Index. Its overall score is 1.9 points lower than last year due to considerable declines in investment freedom and the management of government spending that outweigh improvements in freedom from corruption and monetary freedom. Algeria is ranked 14th among the 15 countries in the Middle East/North Africa region, and its score remains lower than both the regional and world averages.

Algeria’s economy has been on a declining path of economic freedom over the past five years. Having registered the seventh-largest overall score decline in the 2015 Index, the economy is now rated “repressed.” Public spending, bolstered by the hydrocarbon sector, has been expanding in recent years, undermining fiscal governance.

As policies to sustain regulatory efficiency and open markets have been neglected or even reversed, the economy has become more dependent on the state-dominated energy sector. Tariff and non-tariff barriers, coupled with burdensome business and investment regulations, continue to hamper development of a more dynamic private sector and interfere with much-needed diversification of the economic base.

Background

President Abdelaziz Bouteflika won a fourth term in April 2014 despite rarely appearing in public after a 2013 stroke. After the “Arab Spring” protests swept Tunisia and Libya, the government introduced some political reforms, including an end to state-of-emergency restrictions on civil liberties that had lasted almost two decades. The socialist model adopted after independence from France in 1962 has hindered development. Formal-sector unemployment remains persistently high, and there is a housing shortage. Algeria is the world’s sixth-largest exporter of natural gas and has the world’s 10th-largest natural gas reserves and 16th-largest oil reserves. The government began a five-year, $286 billion program to modernize infrastructure in 2010 and appears to be trying to attract foreign and domestic private investment and to diversify the economy.

In 2014, the government introduced constitutional revisions that appear to be pro-democratic, but few expect improvements in the generally weak, slow, and opaque judicial system. High levels of corruption plague Algeria’s business and public sectors, especially the energy sector. An estimated one-half of all economic transactions occur in the informal sector. Most real property remains in government hands.

Despite some enhancement of the business environment, significant bureaucratic impediments to entrepreneurial activity and economic diversification persist. The labor market remains rigid, contributing to a high youth unemployment rate. Generous but unsustainable state spending on subsidies for food and fuel, price ceilings, and redistribution schemes to control prices have been used to stave off political unrest.

Algeria has an 8.6 percent average tariff rate. Imports of medical equipment and used earth-moving equipment are restricted. The government screens foreign investment, and regulatory barriers discourage some investors. The financial system remains subject to government interference. State-owned banks provide over 80 percent of loans. The degree of financial intermediation remains low.